Thank you, this is a good point and works well. I found out that permissions of 701 are sufficient, i.e. the directories need to have "execute" permission. Read permissions are not required. Execute permissions on folders are required to open them (as can be see here also: support.apple.com/kb/HT2963?viewlocale=en_US: "Also note that you must have execute permission for any folder that you can open; thus File Sharing requires execute permission set for other, world, and everyone for the ~/Public folder, while Web Sharing requires the same setting for the ~/Sites folder.").
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user53230Oct 22 '10 at 17:46

It is not enough to set the permissions to 777 for the DocumentRoot and its enclosing directory. Permissions must be 777 (or something lesser, but I don't know what) for all directories from / down to the DocumentRoot. That's why this guy learned to put his vhost directories in his user directories: while it's more flexible than that, the point is the same.